How do I compare the cost of Islamic financing with that of conventional financing?

Compare Islamic and conventional finance based on your "total cost," not just the contract name.

Steps

1. For Islamic finance, consider the price of the commodity or asset, profit margin, down payment, expenses, insurance or takaful (Islamic insurance) if applicable, late payment penalties or handling, and early repayment terms.

2. For conventional finance, consider the same cost elements along with the interest rate or APR (Accounting Percentage Rate).

3. Then compare the loan term, monthly payment, total cost, and flexibility.

4. Just because a product is Sharia-compliant doesn't automatically mean it's the cheapest; the Sharia compliance decision rests with the Sharia Supervisory Board and the applicable contractual standards.

The figures, fees and limits in this answer vary by bank and change over time — confirm them with your bank or the official source before acting.

Source

• AAOIFI — Sharia Standards

• Central Bank of Egypt — Know Your Rights